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Our reporter Wang Xiaoyu (chinatimes.net.cn) reports from Beijing

As China's most valuable aviation hubs, Shanghai's two major airports experienced huge losses for three consecutive years during the epidemic. However, since last year, with the rapid recovery of China's air travel and the increase in flight volume, Shanghai Hongqiao International Airport (hereinafter referred to as "Hongqiao Airport") and Shanghai Pudong International Airport (hereinafter referred to as "Pudong Airport"), the operator of Shanghai International Airport Co., Ltd. (hereinafter referred to as "Shanghai Airport"), have also ushered in a major turnaround in performance.

Passenger flow "returns"

Relevant data from the 2024 first-half financial report released on the evening of August 16 showed that Shanghai Airport achieved revenue of 6.064 billion yuan in the first half of this year, a year-on-year increase of 24.55%.

Shanghai Airport said that the year-on-year increase in operating income was mainly due to the year-on-year growth in aviation business volume at the two airports, as well as the year-on-year growth in the company's aviation income, logistics service income and other non-aviation income.

Compared with the performance in the same period of 2019, although the previous asset integration of Hongqiao Airport and Pudong Airport will have an impact on the overall revenue compared with the previous consideration of Pudong Airport's performance alone, the revenue level in the first half of the year exceeded 5.455 billion yuan in the first half of 2019, which is still a landmark moment.

Financial report data shows that in the first half of 2024, Pudong Airport ensured a total of 257,700 aircraft take-offs and landings, a year-on-year increase of 37.32%, a passenger throughput of 36.8802 million, a year-on-year increase of 67.63%, and a cargo and mail throughput of 1.8116 million tons, a year-on-year increase of 13.5%; Hongqiao Airport ensured a total of 135,500 aircraft take-offs and landings, a year-on-year increase of 4%; passenger throughput of 23.4826 million, a year-on-year increase of 16.72%; cargo and mail throughput of 199,800 tons, a year-on-year increase of 30.48%.

According to the 2019 semi-annual report of Shanghai Airport, Pudong Airport had 255,600 aircraft take-offs and landings and 38.2197 million passengers in the same period of the year. The number of take-offs and landings has exceeded that before the epidemic, and the passenger throughput has basically returned to the level before the epidemic.

This is also a microcosm of the overall performance of China's civil aviation this year. According to data revealed by Song Zhiyong, director of the Civil Aviation Administration of China, at the Second Asia-Pacific Aviation Safety Symposium held not long ago, in the first half of this year, China's civil aviation transport turnover, passenger transport volume, and cargo and mail transport volume increased by 11.9%, 9%, and 18.7% respectively compared with the same period in 2019. It is expected that the annual passenger transport volume will reach 700 million, which will set a record high.

As China's most important aviation hub, Shanghai has long been at the forefront of the country in passenger business. In 2019, Pudong Airport and Hongqiao Airport achieved a passenger throughput of 122 million. Among them, Pudong Airport completed a passenger throughput of 76.0975 million and Hongqiao Airport completed a passenger throughput of 45.6766 million.

Compared with other major hub airports in China, Pudong Airport has a clear advantage in international and regional passenger throughput. According to the 2019 financial report data, the number of international and regional flight passengers at Pudong Airport exceeded half.

"Before the epidemic, Pudong Airport had more international and regional flights. The popularity of outbound tourism at that time also boosted the prosperity of the airport's business. At that time, I often passed by the duty-free shops in the international area for work. Every time, there were crowds of people, and the checkout lines were long, and the restaurants in the airport were often overcrowded." A person working in the ground service department of a Shanghai airline said in an exchange with a reporter from the China Times, "For airports, flight volume and passenger flow are the keys to boosting revenue performance. At that time, Shanghai's airport was definitely the 'top flow' among domestic airports."

However, during the epidemic, the number of passengers in the civil aviation industry has dropped sharply, especially the international business has suffered an almost fatal blow. The impact is more obvious for airports like Pudong Airport, which have an advantage in international business.

From 2020 to 2022, Shanghai Airport suffered huge losses for three consecutive years, including a net loss of 1.267 billion yuan in 2020, which was also the first time that Shanghai Airport suffered an operating loss. In 2021 and 2022, Shanghai Airport's total losses reached about 4.7 billion yuan. The total loss was nearly 6 billion yuan due to the epidemic. In contrast, Shanghai Airport's net profit exceeded 12 billion yuan in the three years from 2017 to 2019.

During the epidemic, Shanghai Airport also completed a "major asset reorganization" by issuing shares to purchase 100% of the shares of Hongqiao Airport, 100% of the shares of the logistics company and the assets related to the fourth runway of Pudong International Airport held by the controlling shareholder Shanghai Airport Group, thereby incorporating Hongqiao Airport into the assets of the listed company.

According to Shanghai Airport's response to the purpose of this asset restructuring at the time, this move "is not only to strengthen the unified allocation of shipping resources, but also to resolve the problem of competition with Pudong Airport."

As the impact of the epidemic gradually subsided, Shanghai Airport turned losses into profits in 2023, with revenue exceeding 11.047 billion yuan, a year-on-year increase of 101.57%; net profit attributable to the parent company exceeded 934 million yuan. This is also the first full year after the major asset restructuring.

In 2023, Pudong Airport and Hongqiao Airport achieved passenger throughput of 54.4763 million and 42.4927 million respectively, ranking 2nd and 7th among domestic airports.

Data previously released by Shanghai Airport showed that its domestic market has remained stable this year, and outbound passenger demand has increased significantly. In the first half of the year, the number of aircraft takeoffs and landings and passenger throughput on international routes at Pudong Airport and Hongqiao Airport both doubled, and the year-on-year increase in passenger throughput exceeded 2.4 times.

The “hematopoietic” function needs to be improved

According to the data from Shanghai Airport's 2024 first-half performance report, its net profit attributable to shareholders of listed companies in the first half of the year was 815 million yuan, a year-on-year increase of 515.02%, in line with previous expectations; basic earnings per share was 0.33 yuan/share, a year-on-year increase of 560%.

According to Shanghai Airport, since 2024, the main business volume of the two airports in Shanghai has accelerated its recovery. The company has actively carried out joint marketing with domestic and foreign airports and airlines to further expand the aviation market, strive for the resumption of international flights and the opening of new destinations, continuously improve the passenger route network, enhance the quality of cargo hubs, continuously enrich and improve the business structure and business formats of the two airports, increase aviation and non-aviation business revenue, strictly control costs, and business conditions continue to improve.

Shanghai Airport's profit level in the first half of the year was close to last year's full-year profit of 934 million yuan, which also shows that the civil aviation industry has indeed entered a rapid recovery cycle and is gradually moving away from the impact of the epidemic.

However, compared with the pre-epidemic period, the profitability of Shanghai Airport is far from returning to the pre-epidemic level. Taking 2019 as an example, Shanghai Airport's annual revenue was 10.94 billion yuan, and its net profit reached 5.261 billion yuan, accounting for almost half of its revenue. However, judging from the revenue and profit ratio in the first half of this year, the net profit was less than 15% of the revenue, which is a significant gap.

As China's most popular international "port", the imbalance in the recovery speed of the international and domestic markets in the civil aviation industry has obviously brought certain difficulties to Shanghai Airport's performance recovery.

According to the data released by Shanghai Airport on August 14, the passenger throughput of Pudong Airport reached 7.0811 million in July 2024, a year-on-year increase of 23.90%; the passenger throughput of Hongqiao Airport reached 4.0877 million, a year-on-year increase of 7.41%. According to the overall trend and trend of the civil aviation industry, it is just around the corner to surpass the pre-epidemic level in terms of throughput, but the recovery of profit levels obviously needs further observation.

The Shanghai Airport's semiannual report pointed out that the year-on-year increase in operating income was mainly due to the year-on-year growth in the aviation business volume of the two airports, as well as the year-on-year growth in the company's aviation income, logistics service income and other non-aviation income; while the year-on-year increase in net profit attributable to shareholders was mainly due to the year-on-year growth in the aviation business volume of the two airports and the year-on-year growth in the company's operating efficiency.

Financial report data shows that in the first half of this year, the proportion of aviation business at Shanghai Airport increased from 39.16% in the same period last year to 44.39% this year. Aviation revenue in the first half of the year totaled 2.691 billion yuan, a year-on-year increase of 41.19%. According to Shanghai Airport, this change was mainly due to the year-on-year increase in the number of flights and passenger throughput at the two airports.

According to data released by the Civil Aviation Administration of China at the end of July, in the first half of this year, China's civil aviation international routes completed a total transport turnover of 23.26 billion ton-kilometers, an increase of 84.1% year-on-year and 3.7% over the same period in 2019. In terms of passenger transport volume, international routes completed 29.673 million passengers, a year-on-year increase of 254.4%, and the passenger scale recovered to 81.7% of the same period in 2019.

Judging from the development trend of the industry since the second half of this year, especially the booming summer travel market, it is within expectations for both airlines and airports to achieve further revenue growth. However, for airports, the opportunities to gain more value from the prosperous market seem to be subject to many variables.

One of the most important aspects is the change in non-aviation business revenue. According to financial report data, Shanghai Airport's non-aviation business, a core component of the duty-free contract revenue in the first half of this year, was 648 million yuan, down nearly 17% year-on-year. In 2019, Shanghai Airport's duty-free shops achieved operating revenue of 15.149 billion yuan, accounting for 70% of its profits and a year-on-year increase of 44.95%, becoming the business with the highest revenue and profit share.

It is precisely because of the confidence in the development of the civil aviation market and the growth of its own passenger traffic that Shanghai Airport signed a duty-free shop project operation rights transfer contract with the airport duty-free business operator in 2018, with a seven-year duty-free guaranteed income of 41 billion yuan and a commission rate of 42.5% from 2019 to 2025, changing the previous model of taking the higher of the sales commission and the guaranteed rent. However, the arrival of the epidemic made this new profit-sharing plan unsustainable, so the two parties had to sign a relevant supplementary agreement at the end of 2023 to return the duty-free business operation model to 2018.

In terms of duty-free goods operations, the airport's previous "local customer" model was not only affected by changes in duty-free goods market channels, but also faced many factors such as the slow recovery of inbound and outbound passenger volume and the consumer market recovery being slower than expected.

"Since last year, I have noticed some changes when passing by airport duty-free shops on business trips. One is that the stores look much quieter than before the epidemic. Before the epidemic, when buying cosmetics at Sunrise Duty Free Shop, you had to struggle to shuttle through the crowds in the store to pick them up. Sometimes you would even almost miss your flight because of the long queues at the checkout. But now you often see more clerks than customers, and most of the time there are almost no customers in the duty-free shops," a private owner who often travels between Europe, the United States, and Hong Kong and Macau said in a recent exchange with the China Times. "The clerks have also changed their previous attitude and started to go out of the store to enthusiastically solicit customers and shout out various promotional activities."

Shanghai Airport pointed out in the risk factors of the financial report that the current development of the domestic civil aviation industry has entered a new normal, and the company faces many challenges in its business situation. The growth of Shanghai Airport's air transport is showing a good trend, but the overseas flights and international passenger throughput have not yet fully achieved structural recovery, which has slowed down the growth rate of the company's aviation revenue to a certain extent. At the same time, affected by the changes in the market environment and competition pattern of the duty-free industry, the operating channels of the duty-free industry have changed from the original port duty-free to a multi-channel model such as "offshore island + port + city + e-commerce", and the competition in the port duty-free market has become increasingly fierce. The company faces certain operating and management risks, and its performance may fluctuate to a certain extent.

Editor-in-charge: Huang Xingli Chief Editor: Han Feng